Is Microsoft's Surface Production Increase a Buy Signal, or Just Salesmanship?

This is what happens when a company refuses to release sales results: Speculation runs rampant. The Dec. 11 announcement from Microsoft of its intention to boost production of the Surface tablet, along with making it available to retail outlets ahead of schedule, is a clear sign sales are going great, right?

Hold on a moment. In the past couple of weeks alone, finding blogs, industry rags, and a slew of IT pundits calling Surface tablet sales an abject failure, has been as easy as logging onto the Internet. Apparently, bad news travels fast.

But hold on just another moment -- if things are so bad, why the boost in production? Why the early release of Surface tablets to retailers? And why, pray tell, has Microsoft decided to make several of its temporary "holiday stores" permanent?


Told ya: Sales aren't meeting expectations
Less than two weeks ago, Microsoft was reportedly slashing production of its Surface tablet because of poor sales. This particular report, and you can find a hundred just like it, was from Digitimes' "anonymous, upstream sources," claiming Surface orders were recently "reduced by half." That can't be good.

Everyone's getting into the Surface bashing act, including some of my esteemed Fool colleagues. As always, Fool articles are supported by research, and those analyzing Surface sales results are no exception. One of the latest articles (sort of) clearly indicates that even the Surface tablets that are out there, which supposedly are few and far between, aren't being used much.

The lack of Surface sales, supposedly, and lack of usage, are exactly what Apple folk love to hear. Why? Because unlike some tablet alternatives, including both the Google Nexus 7 and 10, and Amazon.com's Kindle, Microsoft had the unmitigated gall to develop and price the Surface to compete directly with the iPad.

The Nexus and Kindle, along with a couple alternatives from Samsung, don't try to be more than they are -- low-priced alternatives for people on a budget. At about half to three-quarters of the $499 consumers shell out for Microsoft's Surface or Apple's iPad, the alternatives have found themselves a nice little niche.

OK, what's going on here?
After all the bad news, along comes the Dec. 11 announcement, and Microsoft's subsequent 2% jump in stock price (including today's pre-market trading), that rumors of the untimely death of Surface are premature. According to Panos Panay, general manager of Surface: "The public reaction to Surface has been exciting to see. We've increased production and are expanding the ways in which customers can interact with, experience, and purchase Surface."

Microsoft's press release goes on to mention that while the plan had been to offer the Surface to retail outlets beginning in 2013, those plans have been moved up. Now, beginning later this week, stores in the U.S. and Australia will have Microsoft Surface tablets to sell, just in time for Christmas.

There was another bullish sentiment mentioned in the Microsoft announcement, too. Turns out Microsoft intends on making at least some of its 34 holiday outlets permanent, adding to its existing 31 retail stores.

Method to the madness?
As I've mentioned on more than one occasion, Microsoft in general, and CEO Steve Ballmer in particular, are notorious for not sharing sales results. Now that Microsoft intends to up Surface production and push for retail exposure ahead of schedule, I wonder -- was there a method to Ballmer's silent madness?

Not announcing Surface sales expectations, let alone weekly results, set the stage pretty nicely for yesterday's announcement, didn't it? Instead of daily fluctuations of Microsoft's stock price based on Surface results, Ballmer and team are able to release a statement that is immediately viewed as bullish. But is the production increase happening because the initial run was incredibly small? Does this mean the Surface is selling a million tablets a month? Four million?

Bottom line, we don't know how many Surface tablets Microsoft has sold, nor do all the "inside sources." But here we are -- Microsoft's share price is the highest its been in a month, and Surface production is ramping up, just in time for the holidays. Salesmanship, or better-than-expected sales? Who knows? But for long-term investors, it doesn't matter. Microsoft's 3.4% dividend and outstanding value relative to its peers still make it a great addition to your portfolio.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of what appear to be solid sales of its new tablet, the company may make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

The article Is Microsoft's Surface Production Increase a Buy Signal, or Just Salesmanship? originally appeared on Fool.com.

Tim Brugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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